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How do you perceive our political system operates? Maybe something like this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills become law. The law is upheld by the courts. That's it. However, that’s how it once functioned. Not anymore.

The Rise of Secret Arbitration Panels

In the modern era, foreign corporations, and the billionaires who own them, can sue nation states for the laws they pass, at secret arbitration panels made up of corporate lawyers. Such disputes take place in secret. In contrast to domestic courts, these tribunals grant no avenue for appeal or judicial review. You or I cannot take a case to them, and neither can our government, or even enterprises operating from this country. The door is open solely for entities operating from foreign soil.

Should an arbitration panel determines that a law or policy may compromise the corporation’s projected profits, it may order damages of hundreds of millions, running into billions.

This compensation are based not on actual losses but money the panel members conclude the company might otherwise have made. The state may have to drop the legislation. It becomes discouraged from passing future laws in that area, due to the risk of incurring a lawsuit.

A Process Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as companies observe each other, and investment funds fund legal actions in exchange for a share of the settlements. The outcome? Sovereignty and popular rule are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The reason it can supersede domestic law and the decisions enacted by parliaments is that this stipulation has been written – without public consent, and often in conditions of extreme secrecy – within bilateral investment treaties.

A Real-World Case: The Whitehaven Coalmine

Twelve months ago, environmental campaigners secured a significant win at the high court. The justice determined that schemes to open the first new deep coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine would have no consequence on national carbon targets. The Labour government then withdrew the permission the Tories had issued. Now, this success faces being overturned by an offshore tribunal answering to exclusively the corporations petitioning it.

In August, a company whose final controllers reside in the tax haven filed a lawsuit challenging the UK government. Recently a arbitration panel in the United States was established to adjudicate on it.

The company is litigating against the UK for the profits it would have generated if the mine had received permission to go ahead. We have no idea how much this sum represents. Who is serving as its counsel challenging the UK administration? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot Geoffrey Cox. The administration passes a law, the high court validates it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Challenge

Concurrently that the court on the coalmine case was established, information emerged from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. Details are little of the case at present, but it seems likely that he may employ the tribunal to fight the sanctions the UK enacted against him subsequent to the war in Ukraine. He has already filed a claim against another European state on these grounds, claiming $16bn: an amount representing half government’s yearly budget. Among the counsel acting for him in that case? a prominent lawyer, married to the previous PM.

Trade specialists argue that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over sovereign states might be preventing the funds Ukraine desperately needs.

False Assurances and Mounting Risks

We were assured that these events wouldn’t happen. Previously, a government leader, promoting the largest and riskiest of all such treaties, declared: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” An adviser on this matter described activists of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations should be concerned by such legal actions. Cautionary notes that “when companies grasp the authority they’ve been granted, they will redirect their efforts from the weak nations to the developed economies” were dismissed with scepticism.

That warning is now a reality. This year, oil and gas and resource corporations have filed a record number of suits against nations across the economic spectrum, challenging – as in the case of the UK mine – government attempts to halt climate breakdown. Companies have so far won vast sums through ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP